Excess state income tax withheld for 2017. I want refund from state, but not federal deduction for excess. How can federal return not claim the excess state withholding?

[sbinfo]

I had about $4500 too much state income tax withheld. I want to be able to get a refund from the state. I itemize deductions on my federal return, but I don't want to claim the excess state tax withheld on the federal return. I think I need to subtract the excess somewhere, but I can't find a form or worksheet that has an appropriate way to do this without affecting the state return. 

[SteamTrain]

I don't think you can do that...but that's just an opinion.

You could just select the General Sales tax deduction instead, then none of the state refund would need to be added as Federal Income next year....but the sales tax deduction may be too small for your situation.

[SweetieJean]

Or you can opt for the Standard deduction.

[sbinfo]

Much too small. I can achieve what I want by claiming the full withheld state amount and printing the state return. Then return to the federal and lowering the withheld amount to the actual tax due. But it seems to me that there might be a simpler way.

[SteamTrain]

I just don't know that the Feds would accept that.

 The state will issue a 1099-G form next January, for the full refund ...and then the Feds either get a copy of that 1099-G (I think)...or Feds/State coordinate the sharing of tax data and they will expect that full state refund to be reflected on your Federal tax return for 2018.

[sbinfo]

You are correct about the notice. But since  I would not be claiming deduction of the excess and received no benefit by excess withholding,  the refund would not be taxable.

[SteamTrain]

I suspect the IRS doesn't want to keep track and check-up on those details...there's enough chaos with tax reporting without introducing additional subtle accounting manipulations that need to be checked up on.

But that's an opinion..can't point to anything specific that disallows it.  And TTX isn't really set up for such a manipulation.  They have enough trouble getting normal tax reporting done without bugs.....and what you are attempting isn't a normal procedure for 99.872% (a guess) of people doing their own taxes.
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[Hal_Al · Accepted solution]

You have to use a work around in TurboTax (TT). Since you have the download software, you can use forms mode to override the line 5 entry on schedule A. But that will prevent you from e-filing.

Alternatively, still in the forms mode, open Schedule A. Click on the box to the left of line 6. That is a manual entry box. Describe it as “Anticipated State refund” then enter minus (-) $4500. That will still allow you to e-file. 

A third option is to make a manual (& negative) entry on the Tax payments worksheet. 

You are allowed to not deduct it since you know it will be refunded. It's the "good faith" rule. Yes, you my have to deal with the IRS following up on the 1099-G. That's why the line 6 choice is better; it's documented on schedule A. I have actually done this twice, in the past. 

[sbinfo]

Excellent. The line 8 choice gets everything right. I won't know about e-filing until I'm close to done, but getting the numbers right if far more important. Thanks.

[SteamTrain]

@Hal_Al

Thanks Hal....I'd never heard of anyone doing this.....many things new we learn about every year.

[TaxQs4JAKatMT]

Is this still true for 2021 tax year?

[Hal_Al]

Q. Is this* still true for 2021 tax year?

A. Yes. I just tried it (Windows Deluxe version of TT).

*"This": Still in the forms mode, open Schedule A. Click on the box to the left of line 6. That is a manual entry box. Describe it as “Anticipated State refund” then enter minus (-) $4500. That will still allow you to e-file.